Iran fears cause stocks to sink and oil to surge, Tesla Motors higher

Stocks are largely in the red heading into the close on the back of the fear surrounding the US-Iran situation.

Europe

Tensions between the two nations have jumped because of the US airstrikes that killed an Iranian military commander in Iraq. The news has spooked traders, so they have adopted a cut and run strategy when it comes to equities. European stocks enjoyed a rally going into late 2019, and so the Iranian situation has sparked a round of selling. The FTSE 100 is outperforming on account of the energy sector.

London-listed oil stocks have benefitted from the mega rally in the oil market. The smaller oil stocks like Premier Oil and Tullow Oil have underperformed when compared with the bigger companies like BP and Royal Dutch Shell.

GVC and William Hill are lower this afternoon on the back of a report the sector is in for additional regulation. There is talk that VIP schemes will be banded, and that is weighing on the sector. The UK gaming sector was hit when the government clamped down on fixed odds betting, which promoted the firms to expand overseas, and that trend is likely to continue.

Galliford Try wrapped up the sale of Liden Homes to Bovis Homes for more than £1 billion. Galliford had a difficult time last year as the company issued a profit warning in April. Like many of its direct competitors, it took on contracts on too thin margins which proved to be costly, and the disposal of Linden is a part of a drive to focus on core areas of the business.

US

Tensions with Iran have spread to Wall Street as traders are dumping stocks. The Dow Jones posted a record yesterday, so the fear factor surrounding Iran today has prompted traders to exit equities. For now it would seem the bullish run on the back of the Chinese trade deal has dropped off the radar. The ISM manufacturing reading has fallen to 47.2 – a new 10-year low.

Bank of America Merrill Lynch upped their price target for Apple to $330 from $290. RBC also upped their price target for the tech giant to $330 from $295. Apple’s share price is marginally lower today, but that is possibly because of the wider negative sentiment.

Tesla shares hit a record-high as fourth-quarter deliveries were 112,000 - topping forecasts. For the year the group delivered approximately 367,500 vehicles – while the guidance was 360,000 – 400,000. The car manufacturer lowered the price of the Model 3 sedan by 16%, and keep in mind that Model 3 sales accounted for more than 80% of fourth-quarter vehicle sales.

FX

GBP/USD is in the red thanks in part to a stronger US dollar. The BoE consumer credit report took a sharp decline in November as it fell to £563,000 million from £1.33 billion in October. In November, mortgage lending and mortgage approvals were £4.05 billion and 64,994 respectively, both marginally topped forecasts.

EUR/USD is in the red despite the solid inflation reports from France as well as Germany. The French CPI rate jumped from 1.2% to 1.6% - a ten month high, and the German CPI rate ticked up from 1.2% to 1.5%. The updates point to higher levels of demand in the two largest economies in the eruozone, which bodes well for the region.

Commodities

Gold has been driven higher by the risk-off mode of traders. Dealers are swapping stocks for assets that are deemed to be lower risk like gold. The metal hit a level last seen in September on account of the uncertainty in the markets. Should the asset clear the $1,560 mark, it could pave the way for $1,600 to be tested.

WTI as well as Brent Crude have surged today on account of the heightened tensions between the US and Iran. Traders are fearful Iran will retaliate against the US in some form, so there is a sense the situation will remain tense for a while. The chatter of a war in the Middle East is likely to keep the oil market elevated. The Energy Information Administration report showed that oil inventories dropped by 11.4 million barrels, while the consensus estimate was for a fall of only 3.2 million barrels.

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